Sprint Banks on WiMax to Win Back Market Share

Monday

The next generation of mobile technology promises to deliver faster Internet service, and Sprint is aiming to be first on the scene.

Sprint Nextel has taken to boasting that it offers “the first wireless 4G network.”

What does that mean? Sprint’s advertisements do not say. The company assumes that most people, dizzy from the tornado of technobabble, will figure that whatever a G is, when it comes to mobile communications, four of them must certainly be better than three.

In many ways, they are right. The fourth generation (the G) of cellphone technology can carry Internet data for smartphones and laptops as much as four times as fast as the current third-generation systems, and within a couple of years, most big carriers in the United States will offer some version of it.

For Sprint, getting a head start on introducing 4G may be its best and last chance to repair its position in the market, which has been eroded by the company’s disastrous merger with Nextel and its lapses in customer service.

Through Clearwire, an affiliated company in which Sprint owns a 51 percent stake, Sprint is now offering the faster data service on laptops in Baltimore, Portland, Ore., and other cities for a total population of eight million people.

By the end of the year, the service will be in 25 markets, including Chicago, Philadelphia and Dallas. A year after that, it hopes to reach about a third of the country’s population, including New York and San Francisco.

Verizon Wireless will not start to unveil its 4G network until the middle of next year. And AT&T will come out with its upgrade a year later, although its 3G technology can be upgraded to offer much faster speeds than the system used by Sprint and Verizon.

But Sprint’s 4G push comes with huge technical and financial risks. The company is using a technology called WiMax, which was initially developed by Intel to offer wireless service over large distances to computers in homes and offices, not to mobile phones.

The rest of the wireless industry has settled on a global standard called L.T.E. (for Long Term Evolution). While it is still in development, some experts say L.T.E. will be able to handle more traffic than WiMax, and the L.T.E. systems planned by AT&T and Verizon would use radio frequencies that penetrate buildings better than those used by Clearwire.

Moreover, WiMax proved to be more expensive to deploy than the cash-starved Sprint could afford. Last year, it merged its WiMax effort, initially called Xohm, with Clearwire, a struggling start-up initially backed by Craig McCaw, the cellphone pioneer, that went public in 2007 but ran into its own financing troubles. The combined company raised $3.2 billion from Intel, Google and three cable companies: Comcast, Time Warner Cable and Bright House Networks.

The new financing created an opportunity to sell Clearwire’s WiMax service in partnership with its cable investors, said Bill Morrow, who was hired last spring as chief executive of Clearwire.

“Verizon has 81 million customers and AT&T has 79 million,” Mr. Morrow said. “As I divide the camps, that leaves 90 million for the rest of us to band together and share the costs of the build-out.”

Clearwire offers service both for laptops and for home networks, largely in areas that are not well served by existing cable and phone companies. The company is slightly undercutting competitors, offering unlimited broadband for $45 a month, with lower prices for slower speeds and limited usage.

Sprint offers a $70-a-month plan that lets laptops connect to Clearwire’s 4G network wherever it is turned on and to Sprint’s 3G network everywhere else.

Next year, Sprint will introduce smartphones that can use the faster 4G networks where they are available. Voice traffic will still be handled by Sprint’s current network.

Mr. Morrow’s early months at Clearwire have been notable for a fair bit of management turmoil. David Sach, hired in March to be chief financial officer, left in August, taking a $1 million severance check with him.

But Mr. Morrow’s biggest problem may be that he needs to raise a lot more money for Clearwire. The company says it needs an additional $2 billion by the end of next year. One possibility is to sell a stake to T-Mobile, which does not have much spectrum for a 4G network.

A person briefed on the fund-raising said talks with T-Mobile were at an early stage and Clearwire was also talking to other potential investors as well as current holders that may put more money in.

Securing the financing is just the first challenge, according to Philip Cusick of Macquarie Securities. “Trying to build a brand name in the wireless space is going to be really tough,” he said.

Clearwire’s shares closed Friday at $8.22 and are down about 25 percent over the last year.

One eager investor is Sprint. Dan Hesse, the company’s chief executive, told investors this month that Sprint wanted to preserve its majority ownership.

After all, the arrangement gives it the benefit of a faster data network while sharing the cost with other investors. “Instead of investing 100 cents on the dollar, we can invest 50 or 60 cents on the dollar,” Mr. Hesse said at an investor conference.

“From 1 a.m. to 6 a.m., it’s pretty fast,” said Brandon Rust, an accountant in Portland, Tex., who signed up for Clearwire early this month. “But once people wake up, it slows to a crawl.”

Michael Thelander, the chief executive of Signals Research, an independent research firm, said Clearwire’s network in Portland, Tex., was excellent. His tests showed an average speed of 3.8 megabits a second for downloads and 1.7 megabits a second for uploads, four times as fast as current 3G networks.

Of course, any network should be zippy when there are few customers vying for the capacity. Clearwire says it is well positioned to handle crowds because it has assembled 150 megahertz of wireless spectrum.

That is far more than AT&T and Verizon bought for their L.T.E. networks in last year’s government auction of the airwaves. But the frequencies bought by the big telephone companies were reclaimed from old analog television stations, and they are said to travel farther and penetrate buildings better than the higher frequencies used by Clearwire.

Clearwire’s best chance to get ahead may be the new marketing relationships with its cable partners, Time Warner and Comcast, which are positioning WiMax access as a mobile extension of their existing cable home broadband services. At Comcast, adding Clearwire to home Internet service will cost $30 a month.

“Customers want fast, and they want it wherever they are,” said Mike Roudi, the group vice president for wireless service at Time Warner, which has not announced its prices.

Neither cable company has announced wireless voice service, but both have the option to resell Sprint’s cellphone service to their customers.

While Clearwire’s initial market is traveling business people who want the fastest connections, the company’s success may depend on how well it and its partners can persuade people already paying for cellphones and home broadband that they also need high-speed Internet access on the go.

In other words, how much is that fourth G really worth?

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